Hey friends,

Today a discussion on the rent vs buy debate.

Also, caught some fish this week on the 10th annual boys trip.

Eddie

Spoke with a friend yesterday, he’s in the process of selling his house and asked me about investing the money through Wealthsimple. It’s a lot of money and so his first question wasn’t about investing, rather focused on whether it is safe to have that much money just sitting in an app on his iPhone.

Fair question!

I told him I have a significant amount invested through Wealthsimple. Coming from the money management world, as well as using Questrade and Scotia iTrade, I really like the useability, the interface, the automations and overall clean look and efficiency of the WS app. I also know several people with portfolios well into the millions who use it and really like the platform too.

Finally, it’s still a regulated Canadian brokerage operating under the same regulatory conditions as the traditional firms. The “investments” themselves (stocks, bonds, ETFs, etc) don’t become any less secure just because you happen to buy them through a tech-first app on your phone.

So, amigo, ándale.

Then we got into another topic that’s worth exploring - rent vs buy

So he’s selling his house and instead of buying another one, he’s planning to rent. Basically said the cost of ownership with all the maintenance and projects and unexpected surprises was way higher than what he ever expected and what an equivalent rental would cost.

“Dude it’s like 10gs minimum walk out the door every month it’s crazy”. Yup!

Your mortgage is really just the surface cost of homeownership. Need to replace the deck? Twenty grand. Exterior paint? Fifteen grand. Garage door breaks? Five grand. Roofs, appliances, landscaping, insurance, property taxes, it just keeps stacking up. Every month there’s another cheque to write.

I totally agree. I’ve owned two properties in the past but for the past 3 years have been renting and it would cost me substantially more every month if I owned it.

Whenever you go after this debate and say renting is better than owning, you’re going to bubble up some tempers. People will say,  “but all those costs are built into the rent!”

In theory, yes. But in real life (and not to mention living in a rent controlled area) I just haven’t found that to be true. And by the way, rents are coming down, too.

We millennials have been conditioned to believe that owning your personal residence is automatically the best financial decision we’ll ever make. An entire generation got the benefit of a Canadian real estate market that produced epic returns for decades, and so that lesson was instilled. Understandable! But generally, unless there are population explosions for instance, residential real estate goes up with inflation. Add on a little leverage and you get a decent 4-6% return, maybe. Tax free proceeds at the end when selling is great - but you only get to “spend” that if you downsize or move to a less desirable area. So the tax free component is really a good wealth passing strategy, less so a spending your created wealth strategy.

Now, none of this is me saying buying your own home is a bad decision. There are plenty of reasons to own that have nothing to do with maximizing investment returns. Stability, control, community, principal residence tax exemption, etc. Also, “forced savings” via mortgage paydown is a major benefit for people.

Eventually we will buy again, but it’ll be for the qualitative reasons rather than purely financial.

The last thing we talked about was what to actually do with a large windfall once the house sells.

#1 make sure TFSAs are maxed for husband and wife. Also think about those RESPs for the kiddos (max $50,000 each kid). RRSP potentially, but you are an incorporated guy and pulling money from there in the future and also having a large RRSP pool might make the tax treatment too punitive for the RRSP to be truly worth it.

Also I said if there’s a reasonable chance he’ll need some of that money within the next three years, I’d keep that in a high-interest savings ETF earning 2-3%. The stock market is volatile and isn’t the right place for money with a short time horizon.

For the long term money, there’s another decision to make. Do you invest it all immediately, or spread it out over time?

Historically lump sum investing generally produces better returns because markets tend to rise over long periods. But if putting a million dollars into the market all at once is going to keep you awake at night, investing in three equal tranches over six to nine months is a good approach. You give up a little potential return in exchange for a much easier emotional experience.

So, that was the discussion. Interesting? Thoughts? Counters?

Thank you.

Ps. If you’re opening a Wealthsimple account use my referral code PRGS3Q. You and I will both get a $25 bonus. Help me pay for a cheesburger.

Oil prices at $75? The pundits were calling for $150-$200!

What happened? Why were the experts so, so wrong?

Emotions in the capital markets are so heavy, so smart, and yet so futile.

I recall late Feb early March when the war broke out, the vibe on the street was 'wide eyed' and watching out - as if we were on the precipice of a COVID world wide shut down - as if these ‘wide eyed’ watchers wanted it to happen because the chaos is actually a form of sinister excitment.

And many of these folks will get out way over their emotional skis and invest dollars based on their sure knowledge of $150 oil and a world collapsing.

And then Oil peaks out at $115 and collapses back to $75.

Buy the rumor, sell the news. Classic.

As much as these sector trends and themes are exciting, it’s really, really hard to get it directionally right, and then time the buy before the up and get out before the down.

For everything else,

There’s low cost ETFs 🙂

“A day without sunshine is like, you know, night.”

Steve Martin

Who do you want to win the world cup?

With Mexico and Canada gone, my alliance shifts to Spain, Mj is half Spanish 🇪🇸

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